Bank Stocks Plunge on Y2K Worry

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Bank Stocks Plunge on Y2K Worry

NEW YORK – US financial services stocks fell on Monday after a top Wall Street analyst made the unusual move of recommending that investors sell multinational bank stocks because of Y2K computer concerns.

Stocks in such blue-chip issues as Citigroup, Chase Manhattan, J.P. Morgan & Co., and Bank One tumbled when Credit Suisse First Boston banking analyst Michael Mayo warned that the millennium computer bug could cut banks' profits. Mayo also said that their revenues from capital markets are "unsustainably high."

The sell-off in the wake of the rare "sell" recommendation was not limited to the money-center banks, but spread to some larger regional banks and major brokerages, too. Technology stocks also dropped sharply.

In a research report, Mayo said that even if US banks are fully prepared for the date rollover – forecast to create problems as some computer systems interpret the new year as 1900 rather than 2000 – they are still vulnerable to "third-party risk."

"A Y2K problem with a bank in an emerging market country has the potential to cause glitches for banks in the United States," Mayo wrote. As the year progresses, the millennium issue might also delay merger savings, productivity projects, and market-sensitive revenues, he said.

Because "sell" ratings are extremely rare on Wall Street, especially on such widely held stocks as multinational banks, the downgrade spooked investors.

Fewer than 1 percent of all US analysts stock recommendations are "sells," while "buy" ratings account for about two-thirds of the total, according to First Call, a market-research firm.

"The risks of owning bank stocks do not seem worth the returns," Mayo wrote in the report. "On the one hand, improved global growth and greater financial services consolidation offer potential. On the other hand, risks related to [the] year 2000, capital markets, efficiency, and asset quality create downside potential."

"We think banks may be the safest place to keep your money for the year 2000," Mayo said. "It's the bank stocks we're worried about."